Gold Market

Written by Kathleen Gagne

The gold market is a 24-hour a day market where investors buy and sell gold. It is unique in that gold has had value as a commodity for centuries, unlike other commodities being traded. Of all the commodities traded, gold is the one that can be used as both a commodity and as money with which to buy other commodities.

In the US over the centuries, gold has not been the only commodity used as a form of exchange. Food products such as wheat have also served in that capacity. In Virginia, for example, tobacco was long used as legal tender, while in other parts of the world, all sorts of goods have been used as exchange currency, from stones to coconuts.

The Price of Gold

In 1944, members of the International Monetary Fund met to determine the future of gold. Each member state agreed to set a par value for its own currency and agreed to keep the exchange rate for its currency within 1% of that par value. The principal reserve currency was going to be the US dollar. This meant that all the other countries' currencies were tied to the US dollar and that the US dollar was tied to gold.

One of their goals was to maintain a fairly consistent rate for gold. In order to do that, the members had to have the means to deal with fluctuations in supply and demand. That meant having enough gold to sell when the demand was high (to keep prices from going too high) and enough dollars to buy gold when the demand was low (to keep prices from dropping too far). Fortunately, the US controlled about 60% of the world's gold at that time and could create more dollars at will. Thus the gold market took its current form, and people can now buy pure gold, gold bullion, gold stock, and gold coins 24 hours a day.